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  1. 1. http://www.amazon.com/dp/B003S3S4CC Obama's Not a Socialist <b> - By Stephanie Herman to.stephanie.h@gmail.com © 2010 Stephanie Herman Contents Preface Government Ownership Government Protection Government Management Preface Socialism has its place. It didn't inspire countless philosophers, economists, and political thinkers for no reason. As a system of divvying up resources, it's timeless and inevitable – a natural state of things that wasn't so much invented as recognized. Socialism represents an innate system of human cooperation and kindness, human nurturing, and a strong social tapestry. It represents love, trust, and generosity. It represents, oddly enough, the way I was raised by two capitalist, free-market conservatives. Our family of three enjoyed a communal lifestyle, as most families do: we lived according to the common good, making individual choices to benefit the whole. We shared in the overall prosperity of the family, which meant collective ownership of all income, from Dad's paycheck to my babysitting money. We shared in the family work, but this was definitely a top-down system; my parents' shares were more valuable, while my share was usually forced upon me. Do I regret being forced? Not now; it was good for me to nourish the dog, finish my homework, and abuse our spinet piano for 35 minutes every afternoon. It was also good to eat food that a ten-year-old like me could never afford. It was socialism at its best. Any healthy family is primarily a top-down socialist system, consisting of governors and plebes, and a set of enforced rules. Families, though, are small. So yes, socialism has its place, but that place is not on a national scale. Or state- wide. Even a community the size of the original Jamestown Colony – just 500 people – proved too big for socialism to work:
  2. 2. “When our people were fed out of the common store, and laboured jointly together, glad was he could slip from his labour, or slumber over his taske he cared not how, nay, the most honest among them would hardly take so much true paines in a weeke, as now for themselves they will doe in a day [emphasis added]: neither cared they for the increase, presuming that howsoever the harvest prospered, the generall store must maintaine them, so that wee reaped not so much Corne from the labours of thirtie, as now three or foure doe provide for themselves.”1 -Captain John Smith Captain Smith had discovered empirically (by experiencing it) that there is a limiting principle on the effectiveness of socialism, and it's called “self interest.” People rarely ignore self interest, and they never ignore it long-term. But self interest isn't the evil motive cartoons and movies make it out to be. Mother Teresa followed her own self interest in serving the poor in Calcutta; she had a God-given, self-interested incentive to love others. A mother may find it in her own self interest to go without food if her children are starving; she has a self- interested incentive to love her children and make sacrifices for them. Why are we sometimes willing to sacrifice ourselves? What makes it possible to expand our self interest to include other people? The thing that allows us to expand our self-interest to include the interests of other non-selves is love. The problem with socialism is that, to eclipse self interest enough to make it work, everyone must love everyone else. A true “brotherhood of man” is necessary for socialism to work properly. But is global brotherhood humanly possible? E.F. Schumacher was a 20th century economist who embraced the ideal of community in his work, which was critical of what he called the “idolatry of giantism.” His book, Small is Beautiful: Economics as if People Mattered, has inspired ecological sustainability advocates such as Paul Hawken, Pliny Fisk, Hazel Henderson, and Wes Jackson. In the book, Schumacher addresses this very issue of global brotherhood: “[I]t is true that all men are brothers, but it is also true that in our active personal relationships we can, in fact, be brothers only to a few of them, and we are called upon to show more brotherliness to them than we could possibly show to the whole of mankind.”2 In deference to Schumacher's focus on size, we could say that “small” socialism works because we can love and nurture; “big” socialism fails because we can love and nurture only a few. In addition to a brotherhood of man, Big Socialism also requires a ruling authority to implement it. Government usually fits the bill. But advocates of Big Socialism make a mathematical mistake when they assume it's the same thing as small socialism. Moving things from one scale to another (like doubling a recipe) works some of the time, but transferring the family structure onto a national scale does
  3. 3. not. That's because certain things, like families and nations, are “scale dependent” – how big they are matters. As mathematician Ian Stewart points out in Nature's Numbers: The Unreal Reality of Mathematics, an elephant scaled up to the size of a house would collapse under its own weight, and scaled down to the size of a mouse, would have legs that are “uselessly thick.”3 An elephant, like a family, is scale dependent. Still. That hasn't stopped nations from trying to structure themselves as families. And in every country that's tried Big Socialism (turning a nation into a family), it has produced greater inefficiencies and lower levels of productivity and prosperity. It turns out that people will do with less just to avoid overworking for others who aren't “brothers.” The Jamestown colonists stopped working when they realized they could siphon from the common store, or more accurately, siphon from the work of non-family-members. Everyone did not love everyone else, and just being members of a community wasn't enough of a binding tie. Here's a harsh reality: when some people are less willing to work, the community, the state, the nation suffers. Everybody suffers. Adam Smith noticed this back in the 1700s. Adam Smith was the father of “classical” economics, the first modern school of economic thought. The classical economists – including people like David Ricardo and John Stuart Mill – were focused on labor. Smith's eye, in particular, was constantly drawn to those aspects of economics involving work, labor, production, employment. He was the first to recognize that division of labor improves efficiency: one 18th century worker might produce one pin a day, but ten workers, each performing just part of the pin-making process, could produce thousands of pins a day. Likewise, to determine how much a pin, or any commodity, was worth, Smith looked at how much labor went into making it. For example, if it took twice as long to kill a beaver than it did a deer, then one beaver would be worth two deer. This way of looking at value, known as the “labor theory of value,” reflects the classical school's focus on the labor side of things. So in his 1776 book, The Wealth of Nations, when trying to explain what made up a nation's wealth, Smith looked at the nation's labor habits. He wrote that the wealth of a country depends on two things: “[F]irst, by the skill, dexterity, and judgment with which its labour is generally applied; and secondly, by the proportion between the number of those who are employed in useful labour, and that of those who are not so employed. Whatever be the soil, climate, or extent of territory of any particular nation, the abundance or scantiness of its annual supply must, in that particular situation, depend upon those two circumstances.”4 Regardless of your resources, Smith believed it was the ratio of workers to non- workers that determined if those resources could satisfy a nation's needs. What he saw in the communities of 18th century Scotland was that people were
  4. 4. motivated by a love-based self interest. Working made sense when the individual or his family could benefit from it directly: “[M]an has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only. He will be more likely to prevail if he can interest their self-love in his favour, and shew them that it is for their own advantage to do for him what he requires of them. Whoever offers to another a bargain of any kind, proposes to do this. Give me that which I want, and you shall have this which you want, is the meaning of every such offer; and it is in this manner that we obtain from one another the far greater part of those good offices which we stand in need of. It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity, but to their self-love, and never talk to them of our own necessities, but of their advantages.”5 Smith didn't use the terms capitalism or socialism (they didn't exist back then), but he's contrasting these two ideas in the above passage. Both capitalism and socialism are attempts to interest your self-love in my favor; the difference lies in how. Socialism forces you; capitalism pays you. Smith also saw that when more people were motivated by self interest to do work for themselves (and pay others for what they couldn't do), the society or nation – as a whole – was organized and improved, as if by “an invisible hand.” Of course, back then it was just a theory, but today computer models allow us to test self-organization and the invisible hand. Dr. Stuart Kauffman is a biologist studying complexity theory, the idea that simple causes can lead to complex results (like the flapping of a butterfly's wings spawning storms). In 1995, Kauffman published a book called At Home in the Universe; near the end, he laid out a series of experiments he performed at the Santa Fe Institute on “patches,” showing the invisible hand at work. Imagine a chessboard. Each square on the board represents a different species in an ecosystem. In Kauffman's computer model, the species (squares) interact with each other, performing a “conflict-laden task”: making Boolean choices (choosing 1 or 0). The conflicts arise because each square's choice (1 or 0) affects the problems then faced by its neighboring squares, and the choices they must then make. And, adding one more layer, the overall result of these individual choices has to be good for the chessboard, as a whole. In the running of this model, ones and zeroes are flipping in a ripple-like effect throughout the board, and the overall “fitness” or well-being of the board is measured. On a 10 x 10 chessboard (100 squares), the totality of each square making choices to benefit the well-being of the entire board creates a rut, grinding down the interactions into what Kauffman calls frozen rigidity. But when you divide the
  5. 5. board into “patches,” say four patches of 25 squares, where each square has solidarity only to its own patch (rather than the board as a whole), the rigidity eases and squares are once again free to “move” the well-being of the board up and down. When each square must choose to benefit the whole, the chessboard is, in effect, a single patch. “I'll call this the 'Stalinist' limit,” writes Kauffman. “Here a part can flip from 1 to 0 or 0 to 1 only if the move is 'good' for the entire lattice... We all must act for the benefit of the entire 'state'... The Stalinist regime, where the game is one for all, one for the state, ends up in frozen rigidity.”6 What Kauffman notices is that size (complexity) matters. Just as socialism works better for a less complex family than it does for a highly complex nation, a similar reality exists in Kauffman's model: “In worlds that are not too complex, when landscapes are smooth, Stalinism works...”7 As the size and complexity of the chessboard increases, though, working “all for one” becomes much less efficient. In this scenario, when you allow for self interest, something amazing happens: “[C]ontrary to intuition, breaking an organization into 'patches' where each patch attempts to optimize for its own selfish benefit, even if that is harmful to the whole, can lead, as if by an invisible hand, to the welfare of the whole organization.”8 Dr. Kauffman admits he's not ready to apply his computer models as proof of the efficiency of certain political systems, but it's an interesting start. In keeping with E.O. Wilson's theory of “consilience” (the unity of knowledge), Kauffman believes science has a role to play in politics, economics, and our understanding and formulation of public policy. Thanks to these new ways of looking at individual economic choices, we're starting to notice that socialism really does work best on the small scale. So it's easy to see why opponents of President Obama and his administration would want to label him a socialist. It implies a lack of understanding regarding economic scale, the psychology of economic decision-making, and the role of complexity and self-organization in economic theory. But to really understand why President Obama doesn't deserve this pejorative label, we need to better understand the underlying structural problem of Big Socialism, and the slightly different political direction President Obama has chosen. Government Ownership Socialism started out as a very nice, well-intentioned French idea, a generation or so after the French Revolution. The revolution began when over-taxed peasant masses revolted against the aristocrats their tax money had supported. But their plight wasn't new; feudalism like this had been going on for centuries. What sparked the masses to action now, in 1789, were two things: the
  6. 6. Enlightenment ideas encouraging freedom of the individual, and the success of the American Revolution a decade earlier. The French Revolution wrested power away from King Louis XVI and the liberated masses established a new French republic in 1792. This new republic, however, didn't operate at all like its American counterpart. Power was severely centralized into a tiny ruling elite: the nine-person Comité de salut public (Committee on Public Safety). It unleashed the Reign of Terror, and 40,000 French citizens were slaughtered by the new government of the liberated masses for a variety of infractions against the new state. In the decades following, prominent social thinkers were extremely wary of just what else angry, liberated masses might be capable of doing. Cooler heads sought to pacify these masses of “enlightened” individualists, and the best way, it seemed at the time, was to instigate some sort of central planning. This was the political environment in which the first mainstream, non-violent, large-scale socialist, Henri de Saint-Simon, emerged. Saint-Simon is considered the father of Christian Socialism, and his central planning idea broke down like this: the best educated and most talented people should rule the masses, and the masses would be free to nominate the leaders. Nominating meant picking your three favorite scientists, three favorite authors, three favorite poets, etc., and those with the most votes would form a ruling elite. Don't let the word “votes” here fool you, though; this wouldn't be a democratic system. Saint-Simon wanted centralized control, free from any influence of the people, the masses, themselves. Why no democracy? Why no empowerment of the lower classes? Saint-Simon didn't believe in equality. Big Socialism was born, somewhat embarrassingly, from a distrust of the masses. If left to their own devices, they might revolt all over again – a prospect thinkers like Saint-Simon feared. But beyond their recent behavior during the revolution, Saint-Simon shared the opinion of the Enlightenment philosophe Voltaire (who was a friend of the family): that the French masses – or any lower-class groups – were just plain inferior. For one thing, the masses were frustratingly religious. Despite being the founder of Christian socialism, Saint-Simon preferred science to faith. True religion, for him, meant worshiping Isaac Newton. In fact, he was so taken with scientific empiricism (the model of experimentation through experience) that he devised an entirely new religion where scientists would be the priests and the basis for morality would be, oddly enough, gravity. He called his new religion “physicism,” and Saint-Simon envisioned the educated ruling class as its main practitioners. But physicism, if it ever caught on, certainly wasn't for the masses. They could continue worshiping in the traditional Christian way, and there was a good reason for this: Saint-Simon understood that the basic drawback of shared resources (socialism) was that nobody wanted to work long-term for non-family-members.
  7. 7. He believed he found a solution to this problem in Christianity, specifically, Christ's commandment to “love one another.” Therefore, encouraging practical Christianity and the “brotherhood of man” was the best way of motivating such a large group of people to share with non-brothers: “The new Christian organisation will base both temporal and spiritual institutions on the principle that all men should treat one another as brothers. It will direct all institutions, whatever their nature, towards increasing the well-being of the poorest class.”9 And time was of the essence because thinkers like Saint-Simon saw potential revolutions behind every bush. Around this time, the early 1800s, other social thinkers were tackling the same problems and offering up similar ideas. Charles Fourier was another Frenchman interested in organizing the masses, but his vision involved cooperative socialist communities. These communal groups would live together in four-story buildings called phalanstères, much like an apartment complex. Job assignments in the phalanstères would be based on worker aptitudes, and the rich and poor would live together in these buildings; the rich on the top floors, and the poor on the bottom. Again, we're seeing a socialist system designed not so much to liberate the lower classes, as to organize and control them. In fact, we might call Saint- Simon and Fourier very early community organizers. To his credit, Fourier recognized that socialism was scale-dependent; its success would depend on finding just the right size community to implement it. After calculating what he believed to be the maximum number of personality or character types, he concluded that the ideal size of a socialist community would be 1,620 persons. Fourier's concept was smaller in scale than Saint-Simon's, but still qualified as Big Socialism because it involved organizing groups much larger than a family or tribe. Fourier's thinking on size, though, shed some light on another problem with large-scale socialism: if it didn't coalesce naturally, as it does in a family, it would need to be implemented and organized by an outside force. Or simply, by force. It was hard to take Fourier seriously, though, as he believed socialistic harmony would bring about changes in the physical world. During the 8,000 year socialist- harmonic time span he devised, the oceans would lose their salinity and turn to lemonade, the temperature at the north pole would increase significantly, six moons would orbit the Earth, and heterosexual relationships would involve one woman with four men. Moving on from France to Scotland, we find yet another socialist thinker interested in community organizing. Robert Owen, originally from Wales, was a self-made, successful businessman who supported himself financially from the age of 10. All his life, the working and living conditions of the lower classes disturbed Owen. So, when he bought his father-in-law's large cotton mill in New
  8. 8. Lanark, Scotland, he implemented many new reforms. These included eliminating child labor under the age of 10, providing a non-profit company store and school, and implementing an organized socialist society for his employees. Owen's reforms were so successful, they led to the UK's Cotton Mills Factory Act of 1819. Similar to Saint-Simon's belief that the masses were inferior, Owen believed that most people were not responsible for their own actions. “[T]he character of man is formed for him, and not by him,”10 was his motto. Like Saint-Simon, he believed central planning and organization was necessary to ensure good living conditions and “character formation” for the lower classes. He blamed commerce for corrupting individuals, but suggested that large companies could plan and fund worker communities where the wealth and property of the workers would be shared. In such an environment, war would be abolished, Owen believed, and there would be no need for courts or prisons because “every desire for individual accumulation will be extinguished,” and “selfishness... will cease to exist.”11 The visions of these three men included some incredibly irrational ideas: a morality based on gravity, oceans of lemonade, and the end of human conflict. Several years later, Karl Marx and Friedrich Engels saw the damage these three had done to an otherwise good idea, and publicly dismissed their views as “utopian.” In The Communist Manifesto, Marx and Engels wrote: “The socialist and communist systems, properly so called, those of Saint-Simon, Fourier, Owen and others, spring into existence in the early undeveloped period, described above, of the struggle between proletariat and bourgeoisie... Such fantastic pictures of future society, painted at a time when the proletariat is still in a very undeveloped state and has but a fantastic conception of its own position, correspond with the first instinctive yearnings of that class for a general reconstruction of society... [Utopians] still dream of experimental realization of their social utopias, a founding isolated phalansteres, of establishing "Home Colonies"... and to realise all these castles in the air, they are compelled to appeal to the feelings and purses of the bourgeois. By degrees, they sink into the category of the reactionary conservative socialists depicted above, differing from these only by more systematic pedantry, and by their fanatical and superstitious belief in the miraculous effects of their social science.”12 By dismissing Saint-Simon, Fourier, and Owen in this way, Marx and Engels hoped to undo some of the damage their unrealistic notions had done to the cause. And to remove this “fanciful” socialist stigma altogether, they proposed a new framework for the ideal: scientific socialism. Scientific Socialism differed from Utopian Socialism in three distinct ways: 1) it lacked fanciful, harmonious notions, 2) it made no attempt to predict how or when
  9. 9. socialism would manifest itself in the future, and 3) it recognized the need for revolution (so much for the socialist purpose of preventing violence). The two socialist systems of thought were similar, however, in one crucial way: both attacked private property as a corrupting influence. Ignoring all the various tangents and philosophical branches, most people agree that socialism, at its core, is defined by this attack on private property. We can say, then, that the one universal aspect of socialism is social ownership. It's the one common refrain you find in all socialist manifestos, including Dr. Albert Schäffle's Quintessence of Socialism, published in 1891: “[Socialism's] aim and endeavour will be to transform the existing system of private capital, which is already bound up with cooperative social labor, into the common property of the co-operating labourers, into 'the property of the whole community,' into collective capital.”13 As you probably suspect, this basic idea – social ownership – appeared long before Henri de Saint-Simon. You can find it as early as the writings of the apostle Paul. But early expressions of social ownership defined no practical role for the state in its implementation. They were simply acknowledging the way families and tribes and small groups of loving members tended to organize themselves. Saint-Simon, Fourier, and Owen were introducing something rather new: a system of social ownership to be put in place by force, however benevolent. It required a ruling authority of some sort: an educated elite, a large corporation, a governmental state to fund and enforce what's otherwise an unnatural bond. Today, the ruling authority of choice is government. After all, the government is an entity that will, allegedly, be uncorrupted by the ownership of wealth and property. What can government do with it, anyway, other than spread it around in a more egalitarian way? Modern socialism – Big Socialism – by necessity, moved beyond the concept of social ownership to the more refined idea of government ownership. What does this type of ownership imply? That government will control business, control resources, control wealth, and control behavior – exactly the stuff French thinkers hoped could avert another bloody revolt. President Obama, though, is not a Big Socialist, and the reason he's not is simple: government really doesn't need to own the means of production, as Marx suggested, to control the economic activity, the wealth, and the behavior of those volatile masses. There's a better way. Government Protection Obama may talk like a socialist, he may even be a socialist in his heart, but he
  10. 10. governs, primarily, as a corporatist. And he does so without any lasting consequences because most Americans have no idea what corporatism even is. Corporatism, in simple terms, is group-ism. On the socialism – capitalism spectrum, it sits between the two, thumbing its nose at both. Corporatism loosely resembles socialism (redistributing wealth, socializing losses) and it loosely resembles capitalism (preserving private ownership, private profit), but because it involves government-protected commercial monopolies, it's a slap in the face of both. Corporatism is sometimes defined as a marriage between big government and big business, but it's actually much more than that. GM may be a “corporate” group, but so is the Sierra Club. Not to mention PBS, the AFL-CIO, and Planned Parenthood. Government corporatism melds all sorts of special-interest groups (for-profit and non-profit groups) into the mesh of the state. Dr. Howard Wiarda, professor of international relations at the University of Georgia, describes the diversity of US corporatism in the 1970s: “American scholars and universities were closely tied in quasi-corporatist fashion into the Departments of Education and Defense as well as the National Science foundation and the National Institute of Health; artists and performers not only came to rely on the National Endowment for the Arts but also to try to control its grant-making processes; oil companies 'moved into' the newly created Department of Energy as inside 'consultants' on energy resources; while conservation groups successfully 'colonized' the Environmental Protection Agency. The military-industrial complex provided perhaps the richest, in a budgetary sense, domain of corporatist-like government-private-sector collaboration... [N]o one denies that these private groups should be able to lobby on behalf of their own agendas; that is what interest-group liberalism is all about. But being incorporated into public agencies, taking them over in some cases, siphoning off grants and contracts, and using public funds and facilities to pursue a private agenda – that goes beyond interest-group liberalism. That is corporatism.”14 As Wiarda points out, the government incorporates these various groups into itself. When it seems like special interests have too much influence on our politicians, corporatism explains why. The word “corporate” is derived from the Latin corpus, meaning “body.” This term first appeared around the 15th century to describe a group of people united in one body. More specifically, the Oxford English Dictionary defines as “corporate” a group of people authorized to act as an individual. Note the word authorized. Legal corporations (for-profit and non-profit) are
  11. 11. always created by a ruling authority. Groups may coalesce naturally, but corporations don't; they must apply to the government for their very existence. Here in the United States, our government has a long history of authorizing groups to act as individuals, a process known as chartering corporations: “A congressional or federal charter is a federal statute that establishes a corporation. Congress has issued charters since 1791, although most charters were issued after the start of the 20th century. Congress has used charters to create a variety of corporate entities, such as banks, government-sponsored enterprises, commercial corporations, venture capital funds, and more.”15 In the 18th and 19th centuries, charters limited how long a corporation could exist, and its mission had to be defined for government approval. Since 1886, when the Supreme Court decided Santa Clara County v. Southern Pacific Railroad, American corporations have enjoyed “legal personhood,” meaning a corporation has the same Constitutional rights of free speech and due process that individual citizens have. Today, state governments create and legitimize corporations through a less rigid registration process, but it's important to know that while corporations are first imagined and organized by private citizens, they're legally created by government. This is just the first piece in understanding the two-way umbilical relationship between the government and special-interest groups that is called “corporatism.” Conflicts of interest arise from the fact that the US government was structured to protect the rights of the individual. Corporatism is group-ism. More specifically, it defines a way that a group can lobby and participate in government as an individual. The complete opposite of individualism, corporatism marks the ability of groups to influence and create public policy. On the flip side, corporatism marks the system of government that can dictate (in exchange for a protection or a bailout) the behavior of special-interest groups. The odd man out, quite literally, is the individual. “Corporatism tends to emerge in societies that emphasize group or community interests over individual interests,” writes Dr. Wiarda. “The strong individualism of the United States, for example, helps explain why, until recently, corporatism seldom found a receptive breeding ground in America.”16 Individual citizens may be wary of it, but our federal government has been extremely receptive. This is because individuals, whom government has been charged with protecting, are hard to herd. If, however, government can segment society into large groups, those pesky individuals become more manageable. “It is much easier,” writes Robert Locke in an essay on corporatism, “to impose affirmative action or racial sensitivity training on AT&T than on 50,000 corner stores.”17 In fact, our federal government has been dabbling in corporatism since its founding. The earliest corporatist institution in the United States was established in 1791, just three years after the Constitution was drafted. Alexander Hamilton, our first Treasury secretary, had proposed that the newly formed federal
  12. 12. government assume all the debt the13 states incurred during the revolutionary war with England. “He urged this candidly as a means of both diminishing the fiscal importance of the states and cementing the loyalty of wealthy commercial interests to the federal government, [emphasis added]” writes Ralph Ketcham, professor emeritus of history, public affairs, and political science at Syracuse University. “Hamilton's plans were so comprehensive and so brilliantly useful to commercial expansion that he aroused the opposition of Madison, Jefferson, and others who believed that such a strong government, informally allied as it was with the worldwide trading dominance of Great Britain, would subordinate agriculture and subvert the republican ideals of the American Revolution.”18 Hamilton then proposed establishing the First Bank of the United States, a central bank similar to the Bank of England at the time. Though it was a private enterprise, the federal government would hold a minority stake in the bank. Congress granted its charter for 20 years, but because of political opposition, the charter was allowed to expire without renewal in 1811. A second central bank was later chartered, but also allowed to expire, and it took over a century for a Hamiltonian central bank to finally become firmly established here in the United States. That happened in 1913, with the creation of the private corporation known as the Federal Reserve, revisiting the old corporatist model Christopher Horner once called, “the world’s second-oldest profession, that which seeks to make a fortune off of governmental policy rather than through competition.”19 Individualist Americans have been slow to spot central banking's most recent version of corporatism because of its deceptive name. “Federal Reserve” implies a public utility rather than a private corporation. However, this private bank, or group of banks, enjoys a corporatist feature that true laissez-faire (a French term meaning “leave to do,” “leave alone,” or more colloquially, “hands off”) capitalism would never allow: a government-protected monopoly. A monopoly is, by definition, without competition, and in fact, the Fed enjoys more than one: a monopoly on the power to coin and issue money, to affect its value by expanding and contracting the money supply, and to regulate interest rates. These powers were originally given to Congress in Article 1, Sections 1 & 8 of the Constitution, but they now reside in the hands of a private corporation. Of course, a monopoly isn't necessarily a bad thing. Sometimes a market is so small that only one firm enters, fits, or survives in it. In a capitalist system, though, if the monopoly is profitable, competition will rush in to fill the vacuum. Profitable monopolies can't exist without government protection. “Historically,” writes Mark Toma in Competition and Monopoly in the Federal Reserve System, “the government has served as a cartelizing agent in selected markets by passing laws which grant monopoly rights to a privileged firm... ”20 This is exactly the role of government, under corporatist administrations, in creating and sustaining its central banks. Our latest central bank, the Federal Reserve, exists as a triple-whammy of
  13. 13. corporatism because, in addition to its government-protected monopoly and power to regulate our economy, its own financial risk is “socialized.” Federal Reserve notes are backed by two things: the member banks' reserve assets and the power of Congress to tax the American people. Socialized risks are those covered by taxpayers: a wonderful benefit for an otherwise private business because true capitalism would never allow it. Laissez faire, mentioned above, means the government keeps its “hands off” economic activity; the socialization of risk (ie., bailouts to business via taxation) is, by definition, “hands-on” government. A corporatist government sees socialized losses, or the socialization of risk, as necessary to stabilize the economy, which explains why large corporations are often bailed out, defined as “too big to fail.” The implication of “too big to fail” is that if an uber-large company doesn't get bailed out – if its losses aren't socialized – its failure would disrupt the entire economy. It wouldn't. However, the failure of any large corporation does create two economic realities that, while acceptable under laissez-faire capitalism, are completely unacceptable to a corporatist government: 1) the jobs lost by a failed company's employees, and 2) the removal of the failed company's products from what we call the “flow of material goods.” Why are they unacceptable to a corporatist government? Because people expect government to do, at the very least, two things: 1) reduce unemployment, and 2) guarantee the flow of material goods. We want jobs and we want stuff to buy. The fact is that both could be accomplished through more laissez-faire (“hands off”) economic policies. A corporatist government, however, responds to this dual request not by changing policy, but by socializing the losses of incompetent, inefficient companies. In a chapter of his book entitled, “'The Socialization of Risk and the Appeal of Corporatism,” Robert Grady discusses how socialized losses have become all-pervasive: “[T]he contemporary focus on the socialization of risk by public officials and business leaders is not whether to do it – that was resolved by early twentieth- century progressives and the New Deal – but how to utilize it. Industrial policy advocates have, they believe, the appropriate approach. Not surprisingly, the socialization of risk has become so pervasive that the United States is now a 'state of permanent receivership.' In economic parlance, government puts firms in receivership by underwriting their solvency until creditors are secured or reorganization restores efficiency. With 'permanent' receivership, it attempts to secure major institutions or sectors whose performance impacts the larger society before they collapse – the savings and loan bailout from 1989 onward and the earlier Lockheed, New York City, Chrysler, and steel industry bailouts simply represent the extreme cases.”21
  14. 14. New Deal and modern progressives, like President Obama, are champions of government bailouts (socialization of losses) because they are “popular” solutions for economic turbulence. Capitalist solutions, like allowing large corporations to fail, despite the resulting job losses, are not nearly as popular. But as angry as bailouts make us, we always lash out in the wrong direction, blaming capitalism instead of progressive corporatism. Googling the phrase “private profits, social losses,” is a lesson in our collective ignorance of how corporatism works. Most of the search results cite unfettered capitalism as responsible for this evil, oppressive system. (The first result listed, after performing this search today: “Capitalism is Crazy,” an article published at Workers' Liberty, a socialist website.) Just like maintaining a monopoly, socializing losses requires the government's help. It requires a corporatist collusion between government and business – a collusion that laissez-faire capitalism (capitalism without government intervention), by definition, would prevent. “Capitalists believe in choice, free markets and competition,” writes Cenk Uygur in The Huffington Post. “Corporatists believe in the opposite. They don't want any competition at all. They want to eliminate the competition using their power, their entrenched position and usually the politicians they've purchased. They want to capture the system and use it only for their benefit.”22 But capitalism isn't corporatism's only scapegoat; many people confuse it with socialism, as well. At the time President Roosevelt's New Deal was debated and passed, Senator Robert Taft (the son of President William Howard Taft) was the leading voice against it. He was known as “Mr. Republican,” and was one of the first to loudly accuse the New Deal supporters of enacting socialism. But was it really socialist? Responding to the Great Depression, Roosevelt enacted vast new regulations on business in the name of economic “recovery.” An agency known as the National Recovery Administration (NRA) was one of the first New Deal programs to be implemented – its job was to oversee these regulations. “The NRA provided that in America each industry should be organized into a federally supervised trade association...” wrote John T. Flynn in 1948. “These code authorities could regulate production, quantities, qualities, prices, distribution methods, etc., under the supervision of the NRA... The anti trust laws forbade such organizations.”23 The regulations Flynn lists here were just the type of regulations that penalize smaller companies, who usually can't afford to comply. So the NRA, a government agency, was, in effect, protecting large firms from the competition of smaller ones. That would seem more corporatist than socialist. Even more troublesome, though, was that the NRA allowed private trade groups to write their own “codes of fair competition” – a system of self regulation to keep businesses from competing “destructively” with one another. In other words, the NRA was an assault on competition, a main feature of capitalism. George Sloan, the head of the Cotton Textile Code Authority, called this arrangement “the
  15. 15. partnership of industry with Government,”24 which sounds as good as any definition of corporatism out there. In 1934, Jacob Maged wasn't fully aware of the NRA state code of “fair” competition that directly affected his tailoring business in Jersey City. But when he charged 35 rather than the NRA-prescribed 40 cents to press a suit – something that might benefit a Depression-era consumer – he was arrested and jailed for three days. The New York Times published this rather sad account: “[Maged] had heard of the negotiations among the 'higher-ups' in the cleaning and dyeing industry concerning attempts at price fixing and regulating, but it had been his conception that these changes were to be directed against the 'cut- throat' competition that had been ruining his business. He believed that the codes were designed to help the 'little fellow' and could not believe that by charging 35 cents instead of 40 cents to press a suit would put him behind bars. In court yesterday he stood as if in a trance when sentence was pronounced. He hoped that it was a joke.”25 Maged was released from jail after promising to comply with the price code. Rexford Tugwell, one of Roosevelt's “Brain Trust” advisers, gave clarifying insight into the pro-group, anti-competitive belief system underlying the New Deal, writing in the New York Times Magazine in 1933: “We are no longer afraid of bigness... We are resolved to recognize openly that competition in most of its forms is wasteful and costly; that larger combinations must in any modern society prevail... Unrestricted individual competition is the death, not the life of trade.”26 Fortunately, the NRA was declared unconstitutional by the Supreme Court in 1935. The obvious corporatism of the New Deal might have been avoided had the US stayed loyal to classical economics. Were he alive in the 1930s, Adam Smith probably would have denounced the New Deal as being full of what he called a “corporation-spirit” – that protective partnership between government and commerce sitting directly at odds with his concept of the invisible hand: “The inhabitants of a town being collected into one place, can easily combine together. The most insignificant trades carried on in towns have, accordingly, in some place or other, been incorporated; and even where they have never been incorporated, yet the corporation-spirit, the jealousy of strangers, the aversion to take apprentices, or to communicate the secret of their trade, generally prevail in them, and often teach them, by voluntary associations and agreements, to prevent that free competition which they cannot prohibit by bye-laws... The pretence that corporations are necessary for the better government of the trade, is without any foundation. The real and effectual discipline which is exercised over a workman, is not that of his corporation, but that of his customers. It is the fear of losing their employment which restrains his frauds and corrects his negligence. An exclusive corporation necessarily weakens the force of this
  16. 16. discipline.”27 This “corporation-spirit” describes the tendency of business toward monopolization, group-enlarging mergers, and the thwarting of natural competition. Remember, capitalism not only encourages competition, it's defined by it. Smith knew in the 1700s that profitable corporate monopolies did not appear as if by an invisible hand; they required specific governmental protections to exist. “[T]he policy of Europe,” Smith wrote, “by restraining the competition in some employments to a smaller number than would otherwise be disposed to enter into them, occasions a very important inequality in the whole of the advantages and disadvantages of the different employments of labour and stock.”28 The system that Smith observed working most efficiently, later dubbed “capitalism” by Karl Marx, did not seek to restrain competition through government protection or any other means. That hands-off capitalism is today defined by the results of hands-on corporatism would curdle Smith's milk. Government Management When a government engages in corporatism, it exploits one particular feature of the modern corporation: the separation of ownership from management. Unlike sole proprietor or partnership structures, a corporate structure prevents the owner(s) from controlling the wealth of the company. Its money is controlled by the company's managers and directors, none of whom have an ownership stake. This arrangement protects a company from the poor judgment of its owners, and allows for the sale of companies without altering the corporate identity: the management can function independent of the status or effectiveness of its owners. The most effective way for a government to control the actions and purse strings of any industry is not by affecting ownership, as is done in socialism, but by affecting management. In a corporatist takeover, the government doesn't confiscate property; it funds it. This is exactly what happened when the Obama administration bailed out General Motors (GM). The government loaned the company $6.7 billion at 7% interest, and funneled another $42.8 billion to the company through the purchase of GM stock. GM's assets weren't seized, as you might expect a socialist government to do. Instead, the administration took over GM's management. Rick Wagoner, the chairman and CEO, did not own GM; he was in charge of managing GM's money. President Obama himself, in a blatantly corporatist act, fired Wagoner and most of GM's board of directors.
  17. 17. Why did the President want to control GM's management? It had less to do with the bankruptcy than with GM's product focus. Wagoner had steered GM into producing more large trucks and SUVs. By giving the company billions in bailouts, the government was giving itself a role in GM management (not ownership) and could now push the company to produce more environmentally friendly vehicles that will use, according to the GM website, “multiple sources of energy – like biofuels, electricity, and hydrogen.” These are green industries the Obama administration favors, and can continue to favor by controlling the management of GM, one of the world's largest automakers. This corporatist maneuver wouldn't have been as possible, however, without GM's 2009 bankruptcy. “[G]reat economic dislocations bring out the corporatist,” writes Steven Malanga, a senior fellow with the Manhattan Institute, “which is why we now have a government board overseeing General Motors, and the Treasury Department has issued the first car warranty program in its history.”29 Corporatism, though, isn't just about government control over business. It encompasses a relationship between government, business, and us. Our tacit consent may not be necessary for corporatism to flourish, but our tacit consent has been given time and again. As mentioned earlier, the American people have been requesting various forms of corporatism for years. We specifically asked for corporatism during the Great Depression, when concern over the market's ability to meet our needs – through the flow of material goods – increased greatly. While it's true that Americans want to live and work in a primarily capitalist system, we don't always. While capitalism can be the most efficient way to allocate resources on a large scale, it doesn't make guarantees. For one thing, capitalism doesn't guarantee the flow of material goods. Stock prices fall. People lose jobs. When problems arise, as they inevitably do, we're not content to let the market sort them out: that takes time. Instead, we ask the government for a quick fix. Every economic recession causes a lack of confidence in the market's ability to provide enough “stuff” for everyone. “[T]he fundamental proposition,” writes Robert Locke, “that government should take responsibility for ensuring the flow of material goods to the people, was rapidly embraced by the American people, which continues to embrace it today whether it admits it or not. When people demand that the government 'do something' about a falling stock market, they are playing at capitalism while practicing corporatism.”30 The result? Forget the nanny state; a corporatist state is like a helicopter mom on steroids who never lets her corporate children fall down. And so, the spoiled corporation/child becomes less and less efficient at handling its own business. Is this a bad thing? For the market, yes. For the individual consumer, yes. For the government, no. Special purpose entities, sub-prime mortgages, credit default swaps, oil spills, and other business frauds and
  18. 18. mistakes turn people toward government for help. Government is needed, again and again, to save us from a corrupt system. This empowers government. And this is likely the central reason why President Obama will never govern as a socialist – government ownership of business would be a liability. Any business screw-up would then fall on the government's head. Public outrage would shift to the administration in power, and other entities – perhaps private, capitalist watchdog groups – would be asked to save the people from the new corrupt system. This would weaken government down to nothing. The government is quite happy keeping corporate mistakes in corporate hands. In fact, the crises caused by corporations are a necessary feature of corporatism. Imagine what would have happened if the Obama administration had nationalized the oil industry prior to the massive oil leak in the Gulf of Mexico. This leak was the result of an accident, and accidents can happen to a company whether it's state or privately owned. Had the leak been the fault of a state- owned company, the bureaucracy of state ownership, rather than unfettered capitalism, would now be the problem. President Obama knows that it's much better to “claim” responsibility, and then join in the public scourge of British Petroleum than to seize an industry that could bring similar problems down upon his head. As it stands now, the BP oil leak will only empower government to increase regulation and, in Obama's case, give him another excuse to forbid offshore drilling in the US. (Neither corporate mishaps nor environmental concerns need prevent him, however, from allowing the US to finance offshore drilling in Brazil, under the promise/guise of increasing US exports, as detailed below.) Instead of government ownership, the President chose the much easier path of corporatism, as Anis Shivani has enumerated in The Huffington Post: “Obama, more than Al Gore, George W. Bush, John McCain, or Hillary Clinton, has been the most fully realized CONSENSUS CORPORATIST CANDIDATE of the last decade. His policies reflect a revival of the overt corporatist model prevalent in Bill Clinton's first two years, with a vengeance. Obama's economic rescue package was written by Wall Street, through Timothy Geithner and company; the same will be true of any "financial regulation reform" that ensues from Washington. Big business, with some input from big labor, has already written the immigration bill, quietly resting with Chuck Schumer and Lindsey Graham, ready to be sprung when the time is ready; it will narrow citizenship rights and redefine immigration from a strictly economic point of view. Energy companies are fully incorporated into the writing of the climate and energy bills. The military writes war policy (General Stanley McChrystal's little "rebellion," as Obama was supposedly "thinking out" Afghanistan war policy, was all the more ironic for its pure redundancy)...”31
  19. 19. What Shivani calls the revival of Clintonesque corporatism, which centered on energy commodities, is easily seen in the Obama administration's move to finance oil exploration in Brazil, a process that's just getting underway. In August of 2009, the Wall Street Journal opinion editors reported that the US Export- Import Bank – a self-described “independent, self-sustaining federal agency” – had sent a loan commitment letter of $2 billion to Brazilian oil company Petrobras. “[T]his corporate foreign aid may strike some readers as odd,” wrote the Opinion Journal editors, “given that the US Treasury seems desperate for cash and Petrobras is one of the largest corporations in the Americas.”32 However, the hedge-fund firm of George Soros, a friend of the Obama administration, was and is heavily invested in Petrobras. When Soros purchased $811 million in the Brazilian oil company's stock in August of 2008, it made up his largest holding. Of course, anyone paying attention to the business connections between Soros and the government might cynically label it “crony capitalism,” but that's a mistake we can't afford to continue making. Mislabeling corporatism as any form of capitalism only helps to veil what corporatism is really about. Take, for example, the Patient Protection and Affordable Care Act (ObamaCare). Just as they did during the New Deal debate 75 years earlier, Republicans accused Obama of “socialism” during this debate. But, is ObamaCare really a socialist program? Billy Wharton, editor of The Socialist magazine, the official publication of the Socialist Party USA, expressed his disappointment in The Washington Post that the bill didn't conform to socialist principles at all: “A national health insurance system as embodied in the single-payer health plan reintroduced in legislation this year by Rep. John Conyers Jr. (D-Mich.), makes perfect sense to us. That bill would provide comprehensive coverage, offer a full range of choice of doctors and services and eliminate the primary cause of personal bankruptcy – health-care bills. Obama's plan would do the opposite. By mandating that every person be insured, ObamaCare would give private health insurance companies license to systematically underinsure policyholders while cashing in on the moral currency of universal coverage. If Obama is a socialist, then on health care, he's doing a fairly good job of concealing it.”33 In addition to mandating the purchase of private insurance (another example of the corporatist “partnership” between government and private business), ObamaCare will punish companies that don't provide insurance with a fine of $750 per employee. To its credit, the bill has included a provision to exempt small businesses, under 50 employees, from having to pay the fine. So, ObamaCare is not poised to protect big business from the competition of smaller ones; in all industries, that is, except one. Unionized construction firms used their corporatist relationship with the Obama administration to make a last-minute change to the bill's small-business exemption: only construction firms with five or fewer employees will qualify for the exemption. “Why would the Senate kick small construction contractors when they are down?” asks James Sherk, of the Heritage Foundation. “Special interests,
  20. 20. why else? Construction unions hate the competition from small, mostly nonunion contractors. They do not want the law to allow small businesses to provide less generous health benefits and then underbid them for construction jobs. They want small business to work with the same expensive regulations and taxes they do. Of course, these regulations and taxes burden small businesses more heavily because they have less money to pay for them. Instead of getting more generous benefits many workers at small construction companies will lose both their jobs and their health benefits.”34 Allowing a group of unionized firms to change the ObamaCare legislation in order to remove their market competition is not socialism; it's textbook corporatism. Big business stands to benefit greatly from President Obama's healthcare bill, just as it does whenever government regulates an industry, or allows trade groups to regulate themselves. The political left may know corporate self- regulation isn't honorable, but the right knows it isn't capitalist; instead, it's just a way for big companies to squeeze small ones out of the market. But whether a company is being federally regulated or self regulated, we should be a bit more suspicious about what “regulation” really entails. In a speech to the Economic Club of Chicago, Pfizer CEO Jeff Kindler asked, “How many businesses do you know that want a stronger regulator? We do...”35 The reason he gave was that greater regulation would increase patient confidence. The reasons he didn't give are that a large corporation supported, protected, and increasingly regulated by the government can avoid higher levels of market competition, can socialize its losses, and can look responsible and compassionate to the public while doing it. This is why Pfizer led the charge in supporting ObamaCare. The management of Pfizer recognizes the financial advantages of corporatism, and is eager – even excited – to partner with government in proposing and creating all sorts of corporatist reforms. Kindler, in the same speech, made this recommendation, complete with New Deal style sentiments: “[An] important proposal is to create an independent federal board to oversee much of the health care system, perhaps including decisions about coverage and pricing. The proposed board would set standards for coverage under federal health plans. Because of the importance of federal health plans, these standards are likely to have a significant influence on the private market. This body would be independent from Congress and the Executive Branch, much like the Federal Reserve.”36 President Obama's “cap-and-trade” proposal also has corporate managements excited, but emissions trading wasn't originally Obama's idea. A graduate student at the University of Wisconsin, Thomas Crocker, first proposed the idea in his
  21. 21. masters thesis in 1966, trying to address problems of pollution caused by power plants in Florida. As often happens with new ideas, the thought occurred almost simultaneously to a Canadian economist, John Dales, who published the concept of “tradable emission credits” in his 1968 book, Pollution, Property, and Prices. It was first tossed around politically during the Reagan years as a possible new way for the government to combat acid rain. Ironically, both Crocker and Dales have downplayed the effectiveness of emissions trading (cap-and-trade) on a national level. Crocker believes it's better suited for local, smaller-scale pollution problems. Nevertheless, emissions trading was passed into federal law as part of the Clean Air Act amendments of 1990. This law, however, regulated emissions of sulfur dioxide, a pollutant emitted by power plants. The Obama administration is proposing to cap carbon dioxide, the gas we humans exhale, and which, until recently, has not been considered a pollutant. Regardless of this inconvenient detail, for years there's been a carbon emissions trading industry just waiting in the wings until cap-and-trade legislation could connect all its wires. Attempts to regulate CO2 go back to the Clinton administration, but because it wasn't yet classified as a pollutant, the EPA wasn't authorized to regulate it. A powerful incentive existed to regulate carbon emissions, though, and this incentive had nothing to do with the environment; it had everything to do with money. The Clean Air Act of 1990 had sparked new growth in a little known natural-gas company called Enron. The company discovered, soon after the cap-and-trade law passed, a lucrative side business in trading sulfur dioxide emissions. “Enron had transformed itself into a billion dollar a day commodity trader,” explains Gordon Prather, “buying and selling contracts – and their derivatives – to deliver natural gas, electricity, Internet bandwidth, whatever. In the early 1990s, Enron had even helped establish the market for – and became the major trader in – EPA’s $20 billion-per-year sulfur dioxide 'cap and trade' program.”37 Enron began to lobby Washington aggressively, hoping to expand that side business into carbon emissions. Enron's CO2 lobbying was well received by the Clinton-Gore administration. President Clinton had already established a federal committee to advise him on issues like sustainability and environmental protections, the President's Council on Sustainable Development (PCSD). Not surprisingly, this committee was a “project” of Vice President Gore. In 1996, it produced an Eco-Efficiency Task Force Report that recommended implementing market-based “emission trading” to reduce pollution, one form of which was cap-and-trade, citing the success of the federal Acid Rain Control Program. The Clinton-Gore administration and Enron were already on the same page. A year after the report came out, President Clinton appointed Enron chairman Ken Lay to the PCSD.
  22. 22. Lay was in good company. The PCSD was a corporatist entity enabling greater “partnership” between the government and private industry, as members included David Buzzelli (director of Dow Chemical), Harry Pearce (vice chairman of GM), Steve Percy (chairman and CEO of BP-Amoco), and Kenneth Derr (chairman of Chevron). However, the PCSD wasn't making much progress on the CO2 cap-and-trade front because the EPA wasn't interested in regulating non- pollutants. Enron would need another prong in its approach. Luckily, the United Nations Framework Convention on Climate Change was coming up in December 1997. Up for debate was the Kyoto Protocol, a treaty mandating signatory countries to reduce carbon emissions. But President Clinton was in a bind. The Senate had recently voted, unanimously, that the US should not be a signatory to Kyoto. A week after the Senate vote, Ken Lay and John Browns, chief executive of BP, sat down with Clinton and Gore. Lay and Browns lobbied the two leaders of the free world for “market-based” emissions reductions, and advised them to sign the Kyoto Protocol. That's an image worth highlighting: the bosses of Enron and BP, sitting in the Oval Office, advising Clinton and Gore on how to handle a UN treaty. Were there a photograph of this meeting, it would be the defining image of corporatism in action. Needless to say, Clinton and Gore were completely on board, and so, Enron's head of Environmental Policy and Compliance, John Palmisano, traveled to Kyoto, Japan to attend the UN conference that December. Palmisano gave three speeches at the conference and sent home a memo to Enron executives revealing his excitement at his Kyoto victories and the subsequent prospects for cap-and-trade legislation: “If implemented, this [Kyoto] agreement will do more to promote Enron’s business than will almost any other regulatory initiative outside of restructuring of the energy and natural gas industries in Europe and the United States... During the next year there will be intense positioning of organizations to capture an early lead in a variety of carbon trading businesses.”38 The final Kyoto agreement read very much the way Enron wished it to read. According to the UN's website: “The Kyoto Protocol introduces innovative market-based mechanisms that are available to Annex I Parties to help them meet the new rigorous commitments. These mechanisms enable parties to achieve compliance through climate friendly investments in other countries and through emission trading.”39 It's humorous, sad, and not a little ironic to think of all the under-funded environmental activists, wearing dirty clothes, thin-soled shoes, and animal masks, holding signs in front of federal buildings that read, “What about Kyoto?” If they only knew what they were asking. Palmisano's Kyoto memo, which was released with other internal Enron documents after the company's collapse, illustrates something else, too: how group-ism achieves the necessary leverage for corporatism's success. Palmisano writes: “The EU negotiated as a group. Until two years ago, they negotiated as individual countries. While there are still individual country
  23. 23. interests, the EU retains substantial power when working together. It was this cohesiveness that lead to a more stringent agreement.”40 President Clinton obediently signed the Kyoto treaty on November 12, 1998, but Congress refused to ratify it. That was a blow for Enron, though the company did partially succeed in its quest to trade carbon emissions after the election of George W. Bush. His administration allowed for voluntary carbon emissions, and by 2001 Enron was actively trading these voluntary Certified Emission Reduction credits. But Enron would never see the realization of its lobbying efforts – cap- and-trade legislation – as it went bankrupt in 2001. Cap-and-trade, however, did not die with Enron. In 2007, the Supreme Court, deciding Massachusetts v. the Environmental Protection Administration, ruled that CO2 was a pollutant and the EPA had the authority to regulate its emissions from new cars: another paving stone on the road to a bill. As the carbon dioxide debate again heats up, the issue of scale – the effectiveness of regional versus global solutions – is still a hot topic. John D. Graham, dean of the Indiana University's School of Public and Environemntal Affairs, was quoted in a New York Times blog calling for brand new legislation, rather than relying on the older Clean Air Act: “Clean-air rules are aimed at pollutants with regional and local effects (for example, smog and soot) whereas greenhouse gases have the same impact on the climate system, regardless of where in the United States or the world they are emitted.”41 That experts are concerned with problems of scale is not even on the corporatist minds; this isn't about the success or failure of reducing CO2 emissions. It's about a lucrative market for trading carbon credits. On April 18, 2009, the EPA ruled that current levels of CO2 constituted it as a pollutant. The stage has finally been set for passing cap-and-trade. Today, the corporation most loudly supporting cap-and-trade legislation – and the corporation most well-positioned to profit from it – is Goldman Sachs. Writing for Rolling Stone in 2009, Matt Taibbi took note of the fact that, “Goldman is once again back to its old business, scouting out loopholes in a new government- created market with the aid of a new set of alumni occupying key government jobs.”42 How does Goldman Sachs fit into cap-and-trade? The company happily explains how on its own website, under the Environmental Markets services tab: “On October 12, 2009, Goldman Sachs, Blue Source and CE2 Carbon Capital, Goldman Sachs announced a $12 million US carbon offset transaction, creating environmental and economic benefits as the US works to achieve emission reductions through state, regional and federal cap-and-trade programs. This is the largest publicly announced US offset transaction to date and signifies confidence in the role carbon offsets will play in a US regulated carbon market... In December 2007, Goldman Sachs signed an agreement to invest in APX, Inc.,
  24. 24. a leading infrastructure provider for environmental markets in renewable energy and greenhouse gases including carbon commodities. The company, which is policy-neutral, is well positioned to be a leading provider of registry technology for the developing US carbon market and can leverage this position for expansion into adjacent areas of the domestic and international carbon markets.” [emphasis added] In 2008, Stephanie Baum reported in E Financial News that Goldman Sachs had begun investing in carbon emissions through its minority stake in a portfolio company known as Blue Source, and also mentioned Goldman's 20% ownership stake in London-based Climate Exchange.43 They've also co-founded The Green Exchange, which will offer, according to Goldman Sachs, “a comprehensive range of environmental futures, options and swap contracts for markets focused on solutions to climate change.” Oh, and Goldman Sachs owns 10% of the Chicago Climate Exchange, too. Goldman Sachs, it would seem, is pretty well connected in the carbon trading industry, but so are its former executives. Back in 2004, Al Gore hooked up with three former Goldman Sachs execs, including its former CEO David Blood, to start an investment company together. Generation Investment Management is its name, and it deals in “carbon offsets.” Generation also owns a 2.98% stake in Climate Exchange, the parent company of the Chicago Climate Exchange. Writes Baum, “Volume on the Chicago Climate Exchange, which provides a platform for trading carbon credits, was up by over 300% from January to August 2008 compared to the same period in 2007. Legislation currently under review by the US House of Representatives is expected to boost carbon trading in the US.”44 Blood and Gore stand to make a killing (pardon the pun) with the passage of cap-and-trade legislation. Regardless, Fortune Magazine glowingly (if not naively, or even deceptively) describes Blood's business venture with Gore: “Four years ago David Blood retired as CEO of Goldman Sachs Asset Management. Having seen extreme poverty as a child in Brazil, where his father was an auto executive, Blood was looking for a second act that was about more than making money. [emphasis added] He and Al Gore started Generation Investment Management with a lofty goal; 'To encourage businesses around the world to be more responsible, ethical, and sustainable.'"45 So we can probably assume that Gore's interests are neatly pinned to the coat- tails of Goldman Sachs lobbying efforts, the essence of which is explained further down in Taibbi's Rolling Stone exposé: “[C]ap-and-trade, as envisioned by Goldman, is really just a carbon tax structured so that private interests collect the revenues. Instead of simply imposing a fixed government levy on carbon pollution and forcing unclean energy producers to pay for the mess they make,
  25. 25. cap-and-trade will allow a small tribe of greedy-as-hell Wall Street swine to turn yet another commodities market into a private tax collection scheme. This is worse than the bailout: It allows the bank to seize taxpayer money before it's even collected.”46 Which brings us back to President Obama's role in this long story of corporatist carbon capping. If successful, he'll go down in history as the one man who was finally able to bring to fruition the carbon-trading lobbying efforts of the last 20 years. His 2010 federal budget proposes to support clean energy development with a 10-year investment of $15 billion per year, to be generated from the sale of emissions credits. “To truly transform our economy, to protect our security, and save our planet from the ravages of climate change, we need to ultimately make clean, renewable energy the profitable kind of energy," Obama told Congress in 2009. "So I ask this Congress to send me legislation that places a market-based cap on carbon pollution and drives the production of more renewable energy in America. That's what we need.” The New York Times reported that his comments to Congress were extremely well received: “Nearly all House and Senate Democrats gave Obama a standing ovation for his climate change comments, with Sen. Charles Schumer (D-N.Y.) even turning behind him to give a high five to Senate Environment and Public Works Chairwoman Barbara Boxer (D-Calif.). A small group of moderate Senate Republicans also rose at Obama's mention of cap-and-trade legislation, including Susan Collins and Olympia Snowe of Maine, Lindsey Graham of South Carolina, Mel Martinez of Florida, and John McCain of Arizona.”47 What can we take away from this story? Possibly the same reaction Jacob Jordan had, writing for Red State in May, 2010 (keeping in mind that Paulson, Rubin, and Patterson are all former Goldman Sachs alums): “The overlap between politicians and officials who appear to be against one another’s interests is mind-boggling. Presidents Bill Clinton, George W. Bush, and Barack Obama, Treasury officials such as Hank Paulson, Robert Rubin, and Mark Patterson – they're all promoters of cap-and-trade, in one capacity or another. At one point, a crook like Ken Lay stood to benefit from this agenda. Lay is out of the picture, and someone like Goldman CEO Lloyd Blankfein fills the vacuum... Do you see why those in high office have no problem with accusations of socialism?”48 Our government and business leaders are only too happy to be labeled capitalists and socialists by sedated environmentalists, flag-waving tea partiers, and each other. For almost two centuries, those on the right have attacked corporatism, calling it socialism, while those on the left attack the very same thing, calling it capitalism. The corporatist government protects monopolies, and listens... for the left to blame the right. The corporatist government redistributes our wealth, and listens... for the right to blame the left. While both sides of the
  26. 26. political aisle are caught up in pointless mud-slinging, corporatism sits in the middle unsoiled. It is, perhaps, in our collective interest to begin looking more skeptically at which suits in Washington stay clean. ### Notes 1 Captain John Smith, Travels and Works of Captain John Smith, President of Virginia and Admiral of New England 1580-1631, ed. Edward Arber (Edinburgh, 1910) 516. 2 Ernst Friedrich Schumacher, Small is Beautiful: Economics as if People Mattered (Point Roberts, WA: Hartley & Marks, 1999) 48. 3 Ian Stewart, Nature's Numbers: The Unreal Reality of Mathematics (New York: BasicBooks, 1995) 9. 4 Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, ed. Sálvio M. Soares (MetaLibri, 2007, v.1.0p) 4. 5 Smith 16. 6 Stuart Kauffman, At Home in the Universe: the Search for the Laws of Self- Organization and Complexity (New York: Oxford University Press, 1995) 255-256. 7 Kauffman 262. 8 Kauffman 247. 9 Claude-Henri de Rouvroy Comte de Saint-Simon, “New Christianity,” Henri Saint-Simon (1760-1825): Selected Writings on Science, Industry and Social Organisation (London: Biddles of Guildford, 1975) 291. 10 Robert Owen, Robert Owen's Opening Speech, and his Reply to the Rev. Alex Campbell in the Recent Public Discussion in Cincinnati (Cincinnati, 1829) 130. 11 Robert Owen, Report to the County of Lanark of a Plan for Relieving Public Distress and Removing Discontent (Glasgow: University Press, 1821) 50. 12 Karl Marx and Friedrich Engels, The Communist Manifesto (New York: Penguin Books, 1967) 254-256.
  27. 27. 13 Albert Schäffle, Quintessence of Socialism (London: Swan Sonnenschein & Co., 1891) 18-19. 14 Howard Wiarda, Corporatism and Comparative Politics (New York: M.E. Sharpe, Inc., 1997) 142-143. 15 Kevin R. Kosar, “Congressional or Federal Charters: Overview and Current Issues,” CRS Report RS22230 (Congressional Research Service Web, 2005) 1. 16 Wiarda 15. 17 Robert Locke, “What is American Corporatism?” FrontPage Magazine (12 Sep. 2002: <>). 18 Ralph Ketcham, “Alexander Hamilton” American Revolution Home Page (<http://americanrevwar.homestead.com/files/hamilt.htm>). 19 Christopher Horner, “Wall Street Extorts Kyoto Protocol: Lehman, Enron and other Cap-and-Trade Coincidences” The Energy Tribune (13 Nov. 2008). 20 Mark Toma, Competition and Monopoly in the Federal Reserve System 1914-1951 (New York: Cambridge University Press, 1997) 15. 21 Robert C. Grady, Restoring Real Representation (Chicago: University of Illinois Press, 1993) 72-73. 22 Cenk Uygur, “Corporatists vs. Capitalists” The Huffington Post (16 Sep. 2009) 23 John T. Flynn, The Roosevelt Myth (New York: Devin-Adair Co., 1948) 43. 24 “Dollar Men and Prices” Time (21 Jan. 1935). 25 “Tailor Gets 30 Days For Cutting Prices” New York Times (21 Apr. 1934). 26 Rexford Tugwell, “The Ideas Behind the New Deal” New York Times Magazine (16 Jul. 1933). 27 Smith 103-106. 28 Smith 106. 29 Steven Malanga, “Obama and the Reawakening of Corporatism” Real Clear Markets (8 Apr. 2009). 30 Locke.
  28. 28. 31 Anis Shivani, “The Corporatist Explanation for Obama's 'Failed' Presidency” The Huffington Post (23 Jan. 2010). 32 eds., “Obama Underwrites Offshore Drilling” Opinion Journal (18 Aug. 2009). 33 Billy Wharton, “Obama's No Socialist. I Should Know.” The Washington Post (15 Mar. 2009). 34 James Sherk, “Unions Using Obamacare to Punish Small Business” The Foundry (6 Jan. 2010). 35 Jeff Kindler “Can We Seize This Moment to Reform U.S. Health Care?” Economic Club of Chicago speech (9 Feb. 2009). 36 Kindler. 37 Gordon Prather, “Enron and Kyoto: Down in Flames” WorldNetDaily (19 Jan. 2002). 38 John Palmisano, Internal Enron Memo (12 Dec. 1997, <http://www.politicalcapitalism.org/enron/121297.pdf>). 39 Laurence Boisson de Chazournes, “Kyoto Protocol to the United Nations Framework Convention on Climate Change” UN's Audiovisual Library of International Law (<http://untreaty.un.org/cod/avl/ha/kpccc/kpccc.html>). 40 Palmisano. 41 “Who Should Regulate Greenhouse Gases? - John Graham response” New York Times (19 Feb. 2009). 42 Matt Taibbi, “The Great American Bubble Machine” Rolling Stone (Jul. 2009). 43 Stephanie Baum, “Goldman invests in clean-tech company via First Reserve” Efinancial News (27 Oct. 2008). 44 Baum. 45 eds., “Talking 'bout their generation” Fortune Magazine (12 Nov. 2007). 46 Taibbi. 47 Darren Samuelsohn, “Climate bill needed to 'save our planet,' says Obama” New York Times (25 Feb. 2009).
  29. 29. 48 Jacob Jordan, “Cap-and-trade: A Cash Cow of Corporatism” Red State (16 May 2010). Cover art provided by Clker.com. Grateful acknowledgements to Cleaning-Green.net (www.cleaning-green.net). Copyright © Stephanie Herman 2010 Stephanie Herman asserts the moral right to be identified as the author of this work. All rights reserved under International and Pan-American Copyright Conventions. By payment of the required fees, you have been granted the non-exclusive, non- transferable right to access and read the text of this e-book on-screen. No part of this text may be reproduced, transmitted, downloaded, decompiled, reverse engineered, or stored in or introduced into any information storage and retrieval system, in any form or by any means, whether electronic or mechanical, now known or hereinafter invented, without the express written permission of Stephanie Herman. Thank you, and have a very nice day.